Basic Operations of Commercial Banks

Topics: Bank, Fractional-reserve banking, Asset Pages: 2 (472 words) Published: April 3, 2013
Under Clause 9, Article 20, Law on Credit Institutions in 1997: “Banking operation is currency trading and banking services operation with regular content which is to receive deposit and to use this money for supplying credit and payment services.” Thus, the basic operations of commercial banks include three main activities: depositing, using capital and providing financial services. Deposit of banks is from customer deposits (customers can be individuals, businesses, social organizations or other banks); loans from the Central Bank and from other credit institutions, issue debt instruments such as bank drafts, certificates of deposit.etc and other liabilities. Deposites are the most important resources and accounts for the largest proportion of commercial banks’total capital. When accepting customers’ deposits, the bank will pay the customer a profit, also known as depositing fee of the bank. Besides, in order to attact customers, banks commit to provide customers with many banking services, money transfer services or treasury services, and so on. Deposits are an important source of banks to mobilize, however, when necessary, banks often borrows more. In many countries, Central bank often stipulates ratio of capital funs and mobilization. Therefore, banks have to borrow from Central Bank, from the debt market and from other credit institutions to meet payment demands when deposit is limited. Using capital operation is the one hepl bank make profit. It includes basic activities, such as: lending, investing and equiping other assets. One part of bank’s deposit is given to budget, in the form of safe cash, deposit in State Bank or deposit in other bank. This item occupies a small proportion but play an important role in total bank’s assets. Because it restricts liquidity risk, enhance reputation of bank, and set up a steady base for bank’s profitability. Securities are financial assets held by commercial banks aim for the purpose of liquidity and diversification of...
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